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Sphere 3D: Fiscal 3Q17 Financial Results

Sales up 17% and loss diminishing
This is a Press Release edited by StorageNewsletter.com on 2017.11.10

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(in $ million) 3Q16 3Q17 9 mo. 16 9 mo. 17
Revenues 18.5 21.7 57.7 62.9
Growth   17%   9%
Net income (loss) (43.3) (3.5) (61.0) (18.8)

Sphere 3D Corp. reported financial results for its third quarter ended September 30, 2017.

"This quarter we grew revenue by 17% year-over-year and 12% sequentially from the previous quarter; both signs of the strategic and financial progress we have made," said Eric Kelly, chairman and CEO. "In addition, I am proud of the progress we have made toward the goal of achieving profitability, evident by the improvement in our adjusted EBITDA of 84% year-over-year and 77% sequentially from the previous quarter. These solid financial results are driven by our improved business operations and the growing market recognition of both our virtualization and storage products."

Three Months Ended September 30, 2017 Financial Results:

  • Net revenue was $21.7 million, compared to $18.5 million for the third quarter of 2016, which represented a 17% year-over-year growth in revenue.
  • Product revenue was $19.6 million, compared to $16.5 million for the third quarter of 2016, representing a 19% year-over-year growth.
  • Disk systems revenue was $14.1 million, compared to $11.1 million for the third quarter of 2016. Disk systems is defined as RDX, SnapServer family, VDI, and Glassware derived products.
  • Tape archive product revenue was $5.5 million, compared to $5.4 million for the third quarter of 2016.
  • Service revenue was $2.1 million, compared to $2.0 million in the third quarter of 2016, representing a 5% year-over year growth.
  • Gross margin was 31.1%, compared to 28.0% for the third quarter of 2016. Non- GAAP gross margin for the third quarter of 2017 was 33.7%, compared to 31.1% for the third quarter of 2016.
  • Operating expenses were $11.2 million, compared to $47.8 million for the third quarter of 2016. Included in the operating expenses for the third quarter of 2016 were $34.4 million in impairment of goodwill and acquired intangible assets.
  • Share-based compensation expense was $2.0 million, compared to $2.7 million for the third quarter of 2016. Depreciation and amortization was $1.5 million in the third quarter of 2017 and 2016.
  • Net loss was $3.5 million, or a net loss of $0.59 per share, compared to a net loss of $43.3 million, or a net loss of $21.10 per share, in the third quarter of 2016.
  • Adjusted EBITDA was a net loss of $0.6 million, or a net loss of $0.11 per share, based on 5.9 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $4.0 million, or net loss of $1.96 per share based on 2.1 million weighted average shares outstanding for the third quarter of 2016.
     

The preceding financial results for the third quarter of 2017 include contribution from company's acquisition in January 2017.

Nine Months Ended September 30, 2017 Financial Results:

  • Net revenue was $62.9 million, compared to $57.7 million for the first nine months of 2016 which represented a 9% year-over-year growth in revenue.
  • Product revenue was $56.2 million, compared to $51.2 million for the first nine months of 2016, representing a 10% year-over-year growth.
  • Disk systems revenue was $40.6 million, compared to $35.1 million for the first nine months of 2016. Disk systems is defined as RDX, SnapServer family, VDI, and Glassware derived products.
  • Tape archive product revenue was $15.6 million, compared to $16.1 million for the first nine months of 2016.
  • Service revenue was $6.7 million compared to $6.5 million in the first nine months of 2016, representing a 3% year-over-year growth.
  • Gross margin was 30.2%, compared to 29.3% for the first nine months of 2016.
  • Non-GAAP gross margin was 32.9%, compared to 32.4% for the first nine months of 2016.
  • Operating expenses were $34.3 million, compared to $75.4 million for the first nine months of 2016. Included in the operating expenses for the first nine months of 2016 were $34.4 million in impairment of goodwill and acquired intangible assets.
  • Share-based compensation expense was $5.6 million, compared to $7.4 million for the first nine months of 2016. Depreciation and amortization was $4.6 million compared to $4.7 million in the first nine months of 2016.
  • Net loss was $18.8 million, or a net loss of $4.28 per share, compared to a net loss of $61.0 million, or a net loss of $31.22 per share, in the first nine months of 2016.
  • Adjusted EBITDA was a net loss of $4.2 million, or a net loss of $0.96 per share, based on 4.4 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $11.7 million, or net loss of $5.97 per share based on 2.0 million weighted average shares outstanding for the first nine months of 2016.

The preceding financial results for the first nine months of 2017 include contribution from company's acquisition in January 2017.

Shares outstanding and per share numbers contained in this release reflect firm's 1-for-25 reverse share split that was effected in July 2017.

Our Comments

Abstracts of the earnings call transcript:

Eric Kelly, chairman and CEO:
"Because of our strategic options that we continue to explore with Ernst & Young, we will not have the Q&A portion of the call today."

Kurt Kalbfleisch, CFO:
"OEM revenue was $3.9 million for the third quarter of 2017, up 14.7% from $3.4 million in the preceding quarter and up 21.9% from $3.2 million in the third quarter of 2016.
"Branded product revenue was $15.7 million in the third quarter of 2017, up 14.6% from $13.7 million in the preceding quarter and up 18% from $13.3 million in the third quarter of 2016. Regionally, the branded product revenue for the third quarter of 2017 was 13% in APAC, 38% in Americas and 49% in EMEA.
"Total cash and cash equivalents at September 30, 2017, was $3.9 million compared to $5.1 million at December 31, 2016."

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